Korn Ferry(US:KFY)2023-12-07 16:00Part I. Financial Information Item 1. Consolidated Financial Statements This section presents Korn Ferry's unaudited consolidated financial statements for the quarter ended October 31, 2023, detailing financial position and performance Consolidated Financial Statements Overview Korn Ferry reported total revenue of $1.42 billion for the six months ended October 31, 2023, with operating income significantly impacted by restructuring charges Key Financial Highlights (Six Months Ended October 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $1,418,709 | $1,438,867 | -1.4% | | Operating Income | $79,584 | $231,246 | -65.6% | | Net Income Attributable to Korn Ferry | $44,894 | $150,788 | -70.2% | | Diluted EPS | $0.86 | $2.83 | -69.6% | Consolidated Balance Sheet Summary (in thousands) | Account | Oct 31, 2023 | Apr 30, 2023 | | :--- | :--- | :--- | | Total Current Assets | $1,421,540 | $1,638,669 | | Total Assets | $3,360,961 | $3,574,444 | | Total Current Liabilities | $764,119 | $976,260 | | Total Liabilities | $1,700,461 | $1,921,439 | | Total Stockholders' Equity | $1,660,500 | $1,653,005 | Consolidated Cash Flow Summary (Six Months Ended, in thousands) | Activity | Oct 31, 2023 | Oct 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(141,896) | $(98,718) | | Net cash used in investing activities | $(22,306) | $(150,177) | | Net cash used in financing activities | $(38,649) | $(96,063) | | Net decrease in cash and cash equivalents | $(223,188) | $(384,170) | Notes to Financial Statements Notes detail business structure, accounting policies, and key financial items, including fee revenue breakdown, significant restructuring charges, and a dividend increase - The company operates through five core solutions: Organizational Strategy, Assessment and Succession, Leadership and Professional Development, Total Rewards, and Talent Acquisition. Its go-to-market strategy focuses on approximately 340 Marquee and Regional accounts, which generate about 35% of consolidated fee revenue2124 Fee Revenue by Industry (Three Months Ended Oct 31, 2023) | Industry | Fee Revenue (in thousands) | Percentage | | :--- | :--- | :--- | | Industrial | $204,931 | 29.1% | | Life Sciences/Healthcare | $123,865 | 17.6% | | Financial Services | $122,048 | 17.3% | | Technology | $98,129 | 13.9% | | Consumer Goods | $96,996 | 13.8% | | Education/Non–Profit/General | $58,034 | 8.3% | - In Q2 FY24, the company initiated a restructuring plan due to the challenging macroeconomic environment, resulting in charges of $63.5 million for severance related to position eliminations across all business lines124 - On December 5, 2023, the Board of Directors approved an 83% increase in the quarterly dividend to $0.33 per share, payable on January 12, 2024127 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, noting a fee revenue decrease, a net loss due to restructuring, and a strong liquidity position with ongoing capital returns Results of Operations Fee revenue decreased 3% to $704.0 million due to talent acquisition slowdowns, resulting in a $1.7 million net loss primarily from restructuring charges - A workforce reduction plan was initiated on October 23, 2023, affecting approximately 8% of employees, expected to reduce annualized costs by $110-$120 million. This resulted in a $63.5 million restructuring charge in Q2 FY24137 Fee Revenue by Segment (Three Months Ended Oct 31, $ in millions) | Segment | Q2 FY24 | Q2 FY23 | % Change | | :--- | :--- | :--- | :--- | | Consulting | $177.8 | $173.1 | +3% | | Digital | $97.1 | $94.3 | +3% | | Executive Search | $203.0 | $218.4 | -7% | | Professional Search & Interim | $138.4 | $134.7 | +3% | | RPO | $87.7 | $107.3 | -18% | | Total | $704.0 | $727.8 | -3% | Adjusted EBITDA by Segment (Three Months Ended Oct 31, $ in millions) | Segment | Q2 FY24 | Q2 FY23 | % Change | | :--- | :--- | :--- | :--- | | Consulting | $28.9 | $31.1 | -7% | | Digital | $29.0 | $27.5 | +5% | | Executive Search | $39.7 | $54.5 | -27% | | Professional Search & Interim | $25.6 | $32.5 | -21% | | RPO | $8.9 | $16.0 | -44% | | Consolidated | $98.5 | $131.1 | -25% | Liquidity and Capital Resources The company maintains strong liquidity with $843.8 million in cash and marketable securities, actively returning capital to shareholders through dividends and share repurchases - As of October 31, 2023, the company had $843.8 million in cash, cash equivalents, and marketable securities254 - The company has a $400 million principal amount of 4.625% Senior Unsecured Notes due 2027 and a $650 million revolving credit facility maturing in 2027, with no outstanding balance on the revolver as of October 31, 2023248249 - The share repurchase program has $226.7 million remaining available as of October 31, 2023. The company repurchased $8.6 million of stock in the six months ended October 31, 2023252 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency fluctuations and interest rate changes, with potential $11.3 million impact from currency shifts - The company's main market risks are foreign currency fluctuations and interest rate changes264 - A hypothetical 10% increase or decrease in the value of key foreign currencies against the U.S. Dollar could result in a foreign exchange gain or loss of $11.3 million267 - Interest rate risk is primarily related to the variable-rate Credit Facilities, which had no outstanding balance as of October 31, 2023, and borrowings against COLI contracts268269 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of October 31, 2023, with no material changes to internal controls - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of October 31, 2023270 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls270 Part II. Other Information Item 1. Legal Proceedings The company is not currently involved in any legal proceedings expected to materially adversely affect its business or financial condition - As of the report date, Korn Ferry is not engaged in any legal proceedings expected to have a material adverse effect on the company272 Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes have occurred to the risk factors described in the company's Form 10-K273 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 92,500 shares for $4.4 million during the quarter, with $226.7 million remaining for future repurchases Issuer Purchases of Equity Securities (Quarter Ended Oct 31, 2023) | Period | Total Shares Purchased | Avg. Price Paid | Shares Purchased (Public Program) | Remaining Authorization | | :--- | :--- | :--- | :--- | :--- | | Aug 2023 | — | — | — | $231.0M | | Sep 2023 | 7,615 | $47.92 | — | $231.0M | | Oct 2023 | 100,348 | $47.45 | 92,500 | $226.7M | - The share repurchase program has no expiration date. As of October 31, 2023, $226.7 million was available for repurchases274 Item 5. Other Information No director or Section 16 officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No director or Section 16 officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter275 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - Key exhibits filed include CEO and CFO certifications pursuant to the Exchange Act and Sarbanes-Oxley Act, and Inline XBRL data files276